Meaning: It is the dividend proposed by the board of directors but is to be approved by the shareholders in the annual general meeting.

It appears in the Balance sheet, under the sub-head ‘Short Term Provisions’. of head ‘Current Liabilities.

Treatment: Current year proposed dividend is added while calculating profit before tax and previous year proposed dividend is considered as outflow in financing activities.

(2) Interim Dividend:

Meaning: It is the dividend declared by the board of directors within the financial year if permitted by the articles of association of the company.

It appears outside the balance sheet as additional information.

Treatment: It is added while calculating profit before tax and is considered as outflow in financing activities.

(3) If proposed dividend appears in the Balance sheet and additional information is given regarding the dividend paid/provision during the year, an account is to be prepared for proposed dividend and the treatment done accordingly.

Dr. Proposed Dividend account Cr.

Particulars

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Particulars

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To Bank(Dividend paid){F,O}

To Balance c/d( Closing balance)

By Balance b/d( opening balance)

By Stt. of Profit & Loss (Provision made during the year){PBT,A}

Total

Total

There has been a controversy regarding the treatment of Proposed Dividend, as to how it is to be treated. It has been settled for now i.e. for March 2019 exam. that the Old method is to be followed.(As explained above)

For clearing the doubts , you may check some questions with the solutions, by T.S.Grewal